Gov. Baker plans health care surcharge to deal with Medicaid costs

Thursday

Mar 23, 2017 at 8:00 AMMar 23, 2017 at 4:25 PM

By Matt Murphy State House News Service

The Baker administration has been quietly workshopping an alternative to deal with surging Medicaid costs that would scrap the governor's controversial budget plan to levy a steep new assessment on some employers in favor of a more modest increase to an existing health care surcharge on many businesses.

The new approach, according to multiple business leaders and legislators, would apply more evenly across employers than the pending assessment proposal, but would generate less revenue that the $300 million the administration was counting on to balance its budget for next year.

As part of their efforts to build support for health care solutions among employers, senior administration officials have also told business leaders that they would seek a multi-year freeze in unemployment insurance rates, and pursue a waiver from the Trump administration to go back to rules under Romneycare when employees offered insurance through their employer were ineligible for MassHealth.

The effort by Gov. Charlie Baker to go back to the drawing board reveals a desire by the governor to win broader consensus within the business community for a way to generate additional revenue for MassHealth that can be successfully sold to legislators.

"I don't go around advocating for tax increases on small business, but this plan, because it's broader and less onerous, it would be preferable to smaller businesses," said Bill Vernon, Massachusetts State Director for the National Federation of Independent Business.

The new working proposal would target an increase, at least temporarily, in the Employer Medical Assistance Contribution (EMAC) that businesses with six or more employees pay as part of their overall unemployment insurance costs.

The funds collected under the current system flow into accounts that cover subsidized insurance plans and medical care for the uninsured, including the Commonwealth Care Trust Fund and the Health Safety Net Trust Fund.

In meetings and conference calls with business groups, senior Baker officials have detailed a proposal that would more than double the existing EMAC rate of $51 per employee, according to multiple people who have participated in the discussions.

A new estimate for how much the administration expects to collect from a higher EMAC rate was not immediately available, nor was it clear how Baker's budget office would propose to close the remaining budget gap if the surcharge increase falls short of $300 million.

The Baker administration for weeks has been signaling a willingness to back off its initial budget proposal to impose a $2,000 per employee assessment on companies with 11 or more employees that don't offer health coverage or that do not insure at least 80 percent of their full-time employees.

That proposal, which was drafted in response to what the administration described as surging MassHealth costs as a result of full-time workers shifting off employer-sponsored coverage and into Medicaid, met immediate and strong opposition from business organizations who saw it as an unfair tax targeting consumer behavior over which they had little control.

"The administration has been very open to if not this, then what?" Health and Human Services Secretary Marylou Sudders told the House and Senate budget committees this week.

Behind the scenes, senior Baker officials have been in negotiations with business groups over alternatives that have narrowed in on EMAC as a way to generate additional revenue without creating new red tape for businesses.

Senior administration officials did not dispute the details of the alternative plan, and told the News Service they were also exploring options to bring down the cost of health care and make private insurance more attractive to low-wage workers, to ensure that MassHealth enrollment projections are accurate, and to regularly verify MassHealth enrollee eligibilty.

"The Baker-Polito Administration has engaged various stakeholders in the health care and employer community to discuss the best way to protect Massachusetts' health care system given the recent shift in the insurance marketplace resulting in a surge in Mass Health enrollment. Since the budget was proposed, members of the Administration have stated repeatedly they are open to alternatives to protect taxpayers from paying for thousands of private sector workers' health insurance, while maintaining Massachusetts' leading health care system," Baker communications director Lizzy Guyton said in a statement.

The alternative plan is not without its flaws, however, and building consensus has not been easy.

While many businesses, including those with low-wage workers that are enrolled in MassHealth, may be able to avoid the steep penalties under the employer assessment plan, other businesses that do provide health coverage to the vast majority of their employees and could have avoided the assessment would pay under the new plan.

"The alternative proposal is preferable in the sense that it is temporary, spreads a much smaller assessment over a larger segment of the employer population and would provide some relief on unemployment insurance bills for employers; however, like the Governor's proposal, there are real equity issues with it," Massachusetts Taxpayers Foundation President Eileen McAnneny told the News Service in a statement.

"In both cases, employers who offer health insurance and do not contribute to the growth in MassHealth are being required to pay for it and that fact makes a consensus solution very difficult to reach," McAnneny said.

The Taxpayers Foundation in a recent analysis of Baker's employer assessment plan argued that it was based on a "flawed premise" and could wind up being successfully challenged in court under the federal law that sets minimum standards for most voluntarily established pension and health plans in private industry.

The business-backed think tank also estimated that when fully annualized the employer assessment could cost Massachusetts businesses between $700 million and $800 million a year, much more than the administration's $585 million estimate.

Baker chief of staff Steve Kadish had a conference call Wednesday with small business groups to talk through some of the details of the new concept, according to sources who participated in the call. One participant described the administration's interest in the new proposal as "very serious."

Asked about raising the EMAC rate, Retailers Association of Massachusetts President Jon Hurst said, "I think that's on the plate."

"Options like that, options like totally restructuring the fair share plan with a lower threshold, all those things have been bandied about," Hurst said. "Why do we still have a free care pool with $300 million when everyone's insured? I think that's a fair question, so the uncompensated care pool kind of seems like a logical source, doesn't it, if it's still going to be in place even though everyone's insured."

About 3 percent of the 6.7 million people who live in Massachusetts do not have health insurance, according to the latest state statistics.

Hurst said that given the uncertainty around what will happen in Washington with the Affordable Care Act, the state should avoid "creating a new tax with lot of red tape and bureaucracy" like the employer assesment proposed in Baker's budget.

In 2014, the Employer Medical Assistance Contribution replaced what had previously been known as the Unemployment Health Insurance program that companies paid into beginning under Gov. Michael Dukakis to help pay for insurance for the unemployed.

New employers with six or more employees are exempt from paying the EMAC for their first three years, and then pay a gradually increasing rate that tops out in year six and beyond at 0.34 percent of the first $15,000 in wages paid to an employee.

House leadership has also been looking at the EMAC as a possible alternative to Baker's employer contribution plan as they work to finalize their fiscal 2018 budget proposal and address the sharp concerns raised by business group's with the governor's initial approach.

Health Care Financing Committee Chairman Rep. Jeffrey Sanchez said he hasn't heard directly from the Baker administration, but has talked to business groups about raising the EMAC contribution rate as an alternative to the employer assessment.

"I didn't hear a resounding no from them," Sanchez said.

Sanchez called it a still "unfleshed idea," and he said he wasn't sure it would fully meet MassHealth's spending needs.